NEW DIRECTION FOR ENERGY INDEPENDENCE, NATIONAL SECURITY, AND CONSUMER PROTECTION ACT AND THE RENEWABLE ENERGY AND ENERGY CONSERVATION TAX ACT OF 2007 -- (Senate - April 03, 2008)
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Mr. SPECTER. Mr. President, I commend the distinguished Senator from Illinois for offering this amendment and for initiating very considerable discussion on the plight now being faced by many individuals who are faced with mortgage foreclosure.
He and I have had very extensive discussions on his proposal and my legislative proposal, which has been introduced as S. 2133, which differs from the Durbin amendment in that it provides authority for the bankruptcy court to change the variable interest rate mortgages which have caused so much confusion and so much difficulty in leading to foreclosures by people who could not pay the increases which were noted by the variable interest rate mortgages.
There have been a number of situations where the mortgage rate has jumped far in excess of what the borrower had anticipated.
A homeowner in Lithonia, GA, who borrowed on a variable interest rate mortgage, found the interest payments rising from $1,079 to $1,444, which the borrower could not afford.
A first-time home buyer in De Soto, TX, found their variable interest rate mortgage moving from $1,400 to $1,900.
It is a pattern across the country where people have faced foreclosures.
The difficulty which I see with the Durbin amendment is it will impact on the ability of borrowers to secure mortgages in the future because lenders will be unwilling to loan money where there is the prospect that Congress will intervene and grant authority to bankruptcy courts similar to that suggested by Senator Durbin today.
The core of the consideration was articulated by Justice Stevens in a case captioned Nobleman v. American Savings, in 1993, where Justice Stevens said:
At first blush it seems somewhat strange that the Bankruptcy code should provide less protection to an individual's interest in retaining possession of his or her home than of other assets. The anomaly is, however, explained by the legislative history indicating that favorable treatment of residential mortgages was intended to encourage the flow of capital into the home lending market.
So you have the anomalous situation, as articulated by Justice Stevens, that on the principal home the bankruptcy court does not have such authority. That is for a very sound public policy reason: that if the bankruptcy court did have that authority, then lenders would be unwilling to lend money for first-home mortgages. So if you have a second home or if you have a yacht or if you have other assets, the bankruptcy court does have that authority, but for good reason it does not have the authority on first homes.
There have been a number of studies on the subject concluding that the impact of the Durbin amendment would be deleterious to the ability of people to get mortgages because of the reluctance of lenders to put up the money.
Professor Joseph Mason of Drexel University testified before the Senate Judiciary Committee that ``it is straightforward to conclude'' that cramdowns will increase the cost of mortgage credit.
In its analysis of economic stimulus options, the Congressional Budget Office noted that one of the costs of cramdown proposals ``could be higher mortgage interest rates.''
Federal Chairman Bernanke testified before Congress that modification of mortgages ``would probably lead to concern about the value of existing mortgages and probably higher interest rates for mortgages in the future.''
In studying the impact of cramdowns for farm real estate in Chapter 12 bankruptcy, the U.S. Department of Agriculture estimated that cramdowns raise the interest rates on farm real estate loans by between 25 and 100 basis points.
Even the report cited by supporters of Senator Durbin's bill concluded interest rates will increase. In their paper, ``The Effect of Bankruptcy Strip-Down on Mortgage Interest Rates,'' Georgetown law professor Adam Levitin and Joshua Goodman acknowledge that allowing bankruptcy courts to cram down mortgages will increase interest rates.
The effect of my bill, which is a great deal more modest, will not, I submit, have that effect. The essence of the bill which I have proposed will apply only to mortgages given, borrowings, prior to the date of the introduction of my bill and will sunset in 7 years.
I think it is important the legislation now pending in the Senate deal with the so-called little guy, the guy who lives on Main Street. We have already seen very substantial relief for Wall Street in the Bear Stearns bailout. I am opposed to bailouts. If the entrepreneurs on Wall Street are making investments with the prospect or the expectation or the hope of big profits, and they find their judgment is bad and those profits are not realized and instead there are losses, it seems to me they ought not to be coming to the taxpayers for a bailout. Where they are looking for big-time speculative profits, and they are wrong, they ought to sustain those losses instead of having the losses sustained by the taxpayers.
It is understandable that the Federal Reserve took an exceptional view of the Bear Stearns situation in order to avoid a potential ripple effect and devastating consequences on the economy. It was not a gigantic bailout, in any event, when Bear Stearns stock was selling for $150 or thereabouts a year ago, and the initial bailout was for $2 and the prospect of increasing that to $10.
But I believe the current legislation pending before the Senate is unduly balanced for the big guy as opposed to the little guy or the person who operates on Wall Street as opposed to the person who lives on Main Street. That is why I support the focus of attention which Senator Durbin has brought with his bill--although for the reasons I have stated I disagree, and my bill takes a much more modest approach--Senator Durbin and I worked long and hard to try to reach some accommodation and some compromise, and we could not do it because our approaches are so basically different.
We finally had a vote on our bill in the Judiciary Committee today. Our legislation was introduced last fall and could have been acted on by the Senate a long time ago. We could have brought this matter to the floor and stimulated other amendments and other discussion. The delay of months has resulted in many foreclosures. In the Judiciary Committee today, on a 10-to-9 party-line vote, my bill was defeated, and the Durbin bill was passed for action on the floor. But events on the floor have finally overtaken the committee action. The committee did act today.
Mr. DURBIN. Mr. President, will the Senator yield for a question?
Mr. SPECTER. I do.
Mr. DURBIN. Mr. President, if I could very briefly, because I know others are here to speak, I would like to distinguish, if I can, three or four approaches where we differ between us.
The first element that is important--and I wish to make sure it is clear for the record--my amendment gives to the bankruptcy court the authority to modify the mortgage. But under your amendment, or your approach, the ultimate decision on whether a mortgage is going to be modified still has to be approved by the lending institution; is that not correct?
Mr. SPECTER. Mr. President, I answer the distinguished Senator from Illinois through the Chair by saying that is correct. My bill does allow for the modification of the principal sum but only where the lender is in agreement. I do not do that to give the lender control of the situation. I do that to avoid having a principle established where lenders in the future will be unwilling to loan money for mortgages if they think the bankruptcy court has the authority to reduce the principal over their objection. But if the lender agrees to it--and I think it is important because the bankruptcy court would not have the authority to reduce the principal unless there is the provision I have by obtaining the lender's agreement.
But the principle that the Senator from Illinois seeks to reduce the principal sum, I think, is sound, so long as you do not destroy the ability of the lender to control it so as to not discourage future lenders. So my answer is yes.
Mr. DURBIN. Mr. President, if the Senator will yield for only two or three more questions.
I might acknowledge the fact that currently those lenders can renegotiate the terms of a mortgage without a bankruptcy court and that giving them the last word is going to diminish, I believe, the likelihood that they would agree to anything by the bankruptcy court.
I might also say that under chapter 12 bankruptcies and on farm loans a few years ago, we gave this authority to the Bankruptcy Court and the lenders said: Oh, interest rates will go up, and they didn't.
But I wish to ask this specific question. My amendment limits these modifications to mortgages that are subprime mortgages, and the Specter bill, S. 2133, says these modifications would apply to any type of loan, even prime fixed rate mortgages. Is that not correct?
Mr. SPECTER. It would apply only as long as they are variable interest rate mortgages.
Mr. DURBIN. Mr. President, I wish to also ask the Senator from Pennsylvania, through the Chair: Is it true that the Senator limits the application of his modification of mortgages by the Bankruptcy Court to families earning less than 150 percent of State median income, which would be somewhere in the range of $60,000 to $70,000 a year in most States--annual income of most States--and would not cover those, for example, in the State of California and other States where they have higher incomes and higher mortgages?
Mr. SPECTER. Mr. President, the Senator from Illinois is correct. It may be that my proposal is too modest in that respect. I am not in concrete on that specific provision because I think that could be modified to accommodate different markets without dealing with the underlying principles I am concerned with.
Mr. DURBIN. I thank the Senator for yielding.
I might say to the Chair, I have spoken to the Senator in the hopes that we can bring this to a vote. I have spoken to the minority leader, Senator McConnell, and he has said there are other Members who wish to come to the floor to speak on this amendment, and I hope they will. There is no point in dragging this out indefinitely. There are many other amendments that are going to be offered and I wish to bring this to a vote.
I thank the Senator from Pennsylvania for yielding for a question.
Mr. SPECTER. Mr. President, I thank the Senator from Illinois for the questions. I think the questions clarify the positions. It is almost like debating an issue in the world's greatest deliberative body. Too often speeches are made with no one present except the Presiding Officer and perhaps someone who is listening on C-SPAN 2, besides my sisters. But we need more of this kind of a discussion in the Senate to illuminate and provide a little life and a little spontaneity besides Senators who rise and read from a text, and frequently reading badly from a text.
I agree with the Senator from Illinois that we ought to move ahead on this bill and vote as soon as possible, and I join him in urging people who have amendments to come to the floor. It is my intention to offer another--my amendment, S. 2133, and to have a vote on that after we conclude with the amendment by the Senator from Illinois.
I yield the floor.
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